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News review 12/27: SBF, Tesseract, Binance, Bitcoin, Billionaires

Sam Bankman-Fried was extradited to the United States and released on bail. Coinmotion and Tesseract are at odds due to credit losses in the interest account service. Binance acquired the bankrupt crypto service Voyager. Bitcoin’s hash rate plummeted due to US weather. Crypto billionaires have suffered massive losses in 2022.

Sam Bankman-Fried was extradited to the United States

Almost two months have passed since the collapse of the FTX exchange. No significant news was seen after the first few days but two weeks ago things finally started to happen.

Bahamian police apprehended Sam Bankman-Fried on December 12th. The timing was interesting, to say the least, as SBF had been hanging out in the Bahamas for a month. Just as the man was scheduled to testify before the US Congress, he was transferred to a Bahamian prison.

SBF was detained in the Bahamas for just over a week. After this, he was transferred to the United States, as expected. The images below will become part of the criminal history of the financial markets.

Is Bankman-Fried sitting in an American prison cell awaiting his sentence? Not at all. The man is under “house arrest” in his parents’ luxury home. SBF was released on bail, but even this process was strange, to say the least.

The founder of FTX was given the largest bail in history, 250 million dollars. Many people thought this to be the amount that SBF should pay to get released. Not at all. It was reported that in reality SBF only has to pay 10 percent of the bail. Eventually, we found out that this wasn’t true either.

SBF was released without paying a penny. And no one else paid anything either. According to Coindesk, SBF was allowed to go free in return for a promise that the bail amount will be paid if the man does not appear in court.

Bankman-Fried was simply released from custody on something called a personal recognizance bond. The personal recognizance bond contains Bankman-Fried’s solemn promise (and his parents’ promise) to pay the court $250 million if he fails to show up for trial at the appointed time. (Coindesk)

The BitBoy Youtube channel, which actively follows the FTX case, goes through the case in the video below.

The video also reveals another weird fact. The judge who issued the release of SBF decided to recuse herself from the case citing a conflict of interest. This happened only after SBF was released, which means the decision will remain in place.

Kevin O’Leary served as FTX’s paid advertising face. He has continued to defend Bankman-Fried on social media after the crash, which has been confusing. O’Leary continued in the same manner in front of the US Congress and blamed Binance CEO Changpeng Zhao for the incident.

The whole case of FTX has been really strange from the beginning.

Last week, we also received news related to other key personnel. Alameda Research CEO Caroline Ellison and FTX founding member Gary Wang pleaded guilty to criminal charges and are cooperating with authorities. Ellison took on the position of CEO only in August 2022, when Sam Trabucco stepped aside. Right now, Trabucco is one of the most wanted men in this case.

Coinmotion accuses Tesseract of dishonest activity

The bankruptcies and collapses that shook the crypto market this year have so far stayed away from the Finnish market. Unfortunately, this situation changed a little over a week ago.

Helsingin Sanomat published on 17.12. sensational news where it stated that Finnish crypto companies Coinmotion and Tesseract have drifted into disputes over an interest account service.

How does this relate to 2022 bankruptcies? Because Tesseract has been the provider of the interest account service on a practical level, i.e. loaned the money of Coinmotion’s customers out to earn yield.

It has recently become public that there have been credit losses from this activity. The details are not known, but according to Coinmotion, there have been losses in lending operations in June and November 2022. Many key services of the industry have either gone bankrupt or had major issues in June and November. The list includes companies like 3AC, Voyager, BlockFi, Celsius, Genesis, etc. One of these could be a counterparty of Tesseract.

Having credit losses means that a significant part of the money put into the interest account has been either lost or is stuck in bankruptcy proceedings (or for other reasons, e.g. the Genesis case ). Three percent of Coinmotion’s customers used the interest account service.

Coinmotion has sent information to the interest account users last week. The company states that it is extremely disappointed with Tesseract’s opaque and dishonest way of operating. Coinmotion did not receive information from Tesseract about the June credit losses until November.

The interest account service has also been given an outwardly low-risk image. Tesseract has stated that the loans are overcollateralized on their own website. According to Coinmotion, Tesseract has also not approved all counterparties of the loans with Coinmotion, as it was supposed to.

In December, Tesseract deleted its Twitter account and the blog post that mentioned overcollateralized loans.

So what is Tesseract’s position on the matter? In a previously mentioned interview with Helsingin Sanomat, the company’s CEO Yichen Wu accuses Coinmotion of spreading incorrect information and claims that Tesseract has informed Coinmotion of everything necessary. The views of the companies are therefore far from each other.

Both Coinmotion and Tesseract are supervised by the FIN-FSA. A week ago, FIN-FSA also published its own statement. Unfortunately, it does not shed any further light on the subject. Finanssivalvonta says that it has been in contact with industry operators, but its duties do not include intervening in individual disputes.

Finally, it is good to underline that the news is only related to interest account service users. According to the terms of use, these funds have been transferred to Tesseract, which has been responsible for the implementation of the service.

Customer assets in Coinmotion are always 100% secured and separate from the company’s other assets, as required by FIN-FSA regulation in Finland.

Voyager is acquired by Binance

Binance has made a major takeover in the US last week. The news is about the Binance US exchange, which is a completely independent operator compared to the global exchange. Binance US intends to acquire the assets and customers of the bankrupt Voyager.

Voyager Digital Ltd is a publicly listed (Nasdaq) company with over three million customers. Voyager Digital’s stock price has plummeted from highs of around $26 to just $0.035.

Voyager ran into problems earlier this spring due to an unsecured loan of $650 million to the infamous 3AC. Voyager’s assets were already auctioned in the fall, but then FTX emerged as the winner. Binance US was second at that time.

The collapse of FTX changed the situation and made Binance US the winner. The value of the deal is slightly over one billion dollars.

In the big picture, the collapse of FTX is beneficial for Binance. FTX was one of the most active players in the crypto exchange market, so the collapse of the SBF empire further strengthens Binance’s position. The company also has significant funds to acquire troubled companies like Voyager.

Binance has been showered with a lot of FUD since the collapse of FTX. The company has been attacked by social media influencers and the press. Reuters in particular has been the main publisher of Binance rumors for years.

The purpose was clearly to create a bank run, i.e. the flight of customers’ deposits to Binance. This is what brought down Celsius and FTX. At its worst, Binance experienced multi-billion withdrawals in one day, but it was “business as usual” according to CEO Changpeng Zhao.

Binance’s position is likely to become even stronger during the bear market of 2022-2023.

Bitcoin’s hash rate plummeted due to US weather

Next, let’s go through two news related to Bitcoin mining.

The Bitcoin network’s mining power, or hash rate, collapsed last week by almost 40 percent in just a few days. The Hash rate has fluctuated in the last few months between 220-280 EH/s. Last week, the hash rate fell to around 160 EH/s.

The cause of the collapse was the freezing air that hit the United States. Temperatures dropped to extreme lows, which is why the electricity network became overloaded.

Most mining farms in the United States are located in Texas. The mining companies decided to pull the plug so that the electricity they needed could be used by households. Because of this, the global hash rate dropped by almost 40 percent.

Two things can be concluded from the collapse of the hash rate. The United States share of the global hash rate is almost 50 percent. There has been a huge change here. It started with the Chinese mining ban in the summer of 2021. Another conclusion is that the Bitcoin network (or its security) will not be crippled by major hash rate changes.

There was also bad news from the United States regarding the country’s mining farms. Core Scientific, which has been in trouble for a long time, filed for bankruptcy last week. Core Scientific is a company listed on the US stock exchange. It has more than 140,000 mining rigs, and the company controls an estimated 10 percent of all Bitcoin mining capacity.

The year 2022 has been really difficult for mining companies. Many invested too much in 2021. This has led to intensifying competition at the same time as the price of Bitcoin has collapsed. As a result, the miner’s income has shrunk to a fraction of what it was before.

The richest in the crypto sector lost 116 billion this year

Every crypto investor has suffered big losses this year. Whether it was private investors, hedge funds, crypto exchanges, or mining companies. The “crypto winter” has been harsh for everyone. It has been also brutal for the industry’s richest individuals, who have lost as much as $116 billion, according to Forbes.

Below is a list of the richest investors in the crypto scene and their losses. The image is from this Forbes article.

forbes richlist

Half of the losses can be attributed to one man. Binance founder Changpeng Zhao has lost nearly $60 billion of his $65 billion fortune, according to Forbes. This hair-raising loss is based on Forbes’ estimate of the current value of CZ’s Binance holdings.

The $60+ billion meltdown is probably a bit too much, but Zhao would likely be number one regardless. Sam Bankman-Fried, who became almost penniless in the collapse of the FTX exchange, comes second.

SBF owned a large part of FTX and Alameda Research. According to Forbes, these holdings were worth $24 billion. Now the value of these companies is zero. SBF’s colleague Gary Wang has also dropped from a fortune of almost six billion dollars to zero for exactly the same reason.

Brian Armstrong, the CEO of Coinbase, is also ranked high. One of the world’s largest exchanges has been in a sharp decline in the stock market. Coinbase’s stock is down 85 percent in 2022. Its market capitalization is now even smaller than Dogecoin!